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Pandora switched to cultivated synthetic diamonds, not far from diamond freedom?

June 21, 2022

“The game of natural versus cultivated diamonds is a ‘constant battle’.”

“Natural diamonds out of favor?!”

This is how one media outlet followed up in early May when Pandora, the world’s top jewelry-producing fashion brand, announced that it would no longer use natural diamonds and would instead use laboratory synthetics.

Regarding the abandonment of natural diamonds, in a statement, Pandora CEO Alexander Rakic explained that “diamonds should be affordable and sustainable.”

With a little analysis, it is easy to see that Rakic’s statement has a lot of firepower: first of all, for his target customers, he shows that cultivated diamonds are “affordable” and contribute to “diamond freedom”, while for the jewelry industry, it highlights that cultivated diamonds are more sustainable than natural diamonds For the jewelry industry, he highlights that cultivated diamonds are more sustainable than natural diamonds.

Such actions and statements have earned Pandora the recognition of the secondary market. Following the announcement of the move away from natural diamonds, Pandora’s share price jumped 7% on the same day, hitting a four-year high.

However, the diamond industry launched a “clusterfuck” against Pandora. Five major industry organizations, including the World Diamond Council, the Responsible Jewellery Council, the World Jewellery Federation, the Natural Diamond Council and the International Diamond Manufacturers Association, issued a joint letter accusing Pandora of making “misleading” statements.

Pandora’s accusations come at the same time as its use of natural diamonds is being exposed. Data shows that in 2018, only 0.04% of the stones used by Pandora were natural diamonds; of the 85 million pieces of jewelry sold last year, only 55,000 were natural diamond products.

For this reason, Pandora is considered to have “exploited the contradiction between natural diamonds and laboratory synthetics, cunningly making it a brand marketing opportunity”.

It is easy to see that Pandora is like a spotlight, presenting the “contradictions” and “opportunities” between natural and cultivated diamonds, and putting the business game between the two sides in the open.

Blue Ocean Business Opportunity
Before talking about the business game, the first key point to be clarified is whether cultivated diamonds are real diamonds or not.

“Cultivated diamonds” were previously known as “synthetic diamonds” and “artificial diamonds”, which sounded like they were not “real diamonds The “cultivated diamonds” were previously known as “synthetic diamonds” and “artificial diamonds”, which sounded like they were not “real diamonds”. However, this is just a misunderstanding caused by “careless naming”.

From the chemical composition, the composition of cultivated diamonds and natural diamonds, the same carbon atoms, the hardness of the Mohs 10, density and refractive index is also identical.

From the technology of cultivating diamonds, there are two techniques: one is the High Pressure High Temperature (HPHT) method, the principle of which is to mimic the conditions of the mantle where natural diamonds are formed and create a high temperature and high pressure environment in the laboratory.

The other is the chemical vapor deposition (CVD) method, in which diamonds are cut into thin slices as the substrate or seeds for diamond cultivation, or diamond crystals, and methane with high carbon content or stone grinding is added as the carbon raw material, and the free carbon atoms produced by the raw material are attached to the diamond crystals through the high temperature and high pressure simulation environment and special treatment, and the seeds gradually grow and the diamond purity is extremely high.

According to media analysis, both the name of cultivated diamonds and the diamond cultivation process of CVD technology are easily reminiscent of cultured pearls. “Cultured pearls and natural or wild pearls are ‘real’ pearls without a doubt.”

What’s more, cultured diamonds have been recognized by authorities as “real diamonds.”

In 2018, the U.S. Federal Trade Commission issued jewelry guidelines that remove the word “natural” from the definition of a diamond. This means that non-natural cultivated diamonds have been given “legal” status.

The Gemological Institute of America (GIA), an international authority on jewelry identification and grading, no longer uses the term synthetic diamonds, but instead calls them lab-grown diamonds, and has issued an “exclusive ID” for cultivated diamonds.

Cultivate a diamond
Cultivated diamonds are also real diamonds, but have a significant price advantage. According to media reports, in 2017, the retail price of a 1-carat lab-grown diamond was 65% of the price of a polished natural diamond with the same attributes, and by 2020, this ratio has dropped to 35%.

In other words, compared to a natural diamond of the same grade, a cultivated diamond sells for just about a third of the former, with several cultivated diamond brands even managing to achieve about a fifth.

For this reason, many cultivated diamond brands say “let young people achieve ‘diamond freedom'”.

More affordable, for young people, is a major “killer app”, at the same time, compared to the declining demand for jewelry wedding, the growing demand for “self-catering”, for the cultivation of diamonds to provide a strong consumer power.

According to Bain & Company’s survey, the demand for self-pleasure is the first in both the United States and China, and nearly half of the consumers in China are buying diamonds for themselves.

Product advantages and consumer demand are influencing the entire diamond industry.

The world’s largest diamond supplier, De Beers, which has always been a staunch defender of natural diamonds and emphasizes that natural diamonds are the “real deal,” also joined the diamond cultivation team in 2018.

De Beers CEO Bruce Clive admits, “A lot of research shows that consumers see man-made diamonds as an interesting and inexpensive product, so we see an opportunity that others are overlooking.”

This is indeed a “new blue ocean” of business opportunities. You know, the global production of natural diamonds is about 120 to 160 million carats, and only 6 to 7 million carats of diamonds will be cultivated in 2020, with a penetration rate of about 6%.

In March 2019, the Hong Kong International Jewellery Show unprecedentedly opened an area dedicated to cultivated diamonds and gemstones, “about thirty to forty manufacturers here to display and sell”.

Professor Shen Xitian of the School of Jewelry at China University of Geosciences bluntly exclaimed, “This is something that has never happened before at the Hong Kong Jewelry Show, so I think this market is slowly opening up.”

The market is firing, and contradictions, rivalries and games are therefore popping up all over the place.

open struggle and dark struggle
Cultivating diamond brands emphasize the environmental protection and sustainability of their own products, the louder this aspect, the more attention the “original sin” of natural diamonds.

This is a game of business roots.

The original sin of natural diamonds was best portrayed in the movie “Blood Diamond” starring Leonardo DiCaprio. The film reveals the brutal truth about diamond mining and trading in the context of the civil war in Sierra Leone, namely that diamond mining and sales in African conflict zones are used to support anti-government forces.

Pandora abandoned natural diamonds in favor of synthetic stones, you are not far from diamond freedom?
Image source movie “Blood Diamond

Another original sin is the mining of diamonds, which causes enormous damage to the natural environment where they are mined.

In contrast to the two original sins of natural diamonds, some analysts believe that cultivated diamonds have a natural advantage, “the former is self-explanatory, for the latter, the U.S. laboratory cultivated diamond brand Diamond Foundry claims to use solar and wind energy in the laboratory, and has received zero carbon emissions certification.

“Little Lee” is a walking example of this. As an environmentalist, ten years after acting in “Blood Diamond”, he invested in Diamond Foundry to “stand up” for the cultivation of diamonds.

But are lab-grown diamonds really as sustainable as the manufacturers claim?

In fact, diamond cultivation also requires a lot of energy to produce, and it is manufactured in a high-pressure, high-temperature technical environment, where the use of coal power is more common.

A natural diamond industry transparency report by Trucost ESG Analysis, an S&P Global company, also shows that synthetic diamonds produce three times the CO2 emissions of natural diamonds.

If the “original sin” is the “clear battle” between the two sides, then the price is the “dark battle” between each other, some manufacturers reverse the price advantage of cultivated diamonds, quietly staged Some manufacturers are using the price advantage of cultivated diamonds to quietly play the “steal the beam” game.

Three months ago, the Gemological Institute of America warned the public that it had recently received a large number of lab-grown or treated diamonds that were passing themselves off as natural diamonds through falsified diamond reports and diamond girdle codes.

As an example, one of the lab-grown diamonds, which tested at 1.51212 carats, D color, VVS2 clarity, Type IIa, with a “very good” cut grade, had an accompanying report of 1.50362 carats, E color, VVS2 clarity, Type I, with a “very good” cut grade. The accompanying report shows a natural diamond of 1.50362 carats, E color, VVS2 clarity, Type I, and a “Very Good” cut.

Cultivated diamonds masquerading as natural diamonds can be identified by professional institutions like the Gemological Institute of America, but on the consumer side, it is difficult to identify them with the naked eye, which provides a sort of “breeding ground” for the frequent occurrence of impersonation.

Sales of cultivated diamonds, in addition to impersonating natural diamonds such as “illegal ways”, at this stage there is a key factor that should not be ignored, is the inventory of natural diamonds.

According to industry insider Liu Jiangjiang analysis, in foreign markets, 80% of the cultivated diamond brands or distributors are newly established companies, they are lightly loaded, no inventory impairment pressure.

However, most of the domestic sales of cultivated diamonds go traditional jewelry channels, these channels have been backlogged natural diamond inventory, “unless the traditional jewelers can confirm that cultivated diamonds will not have any impact on consumers to buy natural diamonds, or operating cultivated diamonds can be more stable profit, or will not easily try to actively promote cultivated diamonds “.

From this perspective, the game of natural diamonds and cultivated diamonds will be a “protracted war”, China’s cultivated diamond market even if you want to get rid of the traditional jewelry channels, but also new channels, multi-party cooperation, which is also a thorny road, can not be achieved overnight.

Of course, in the entire jewelry market, natural diamonds and cultivated diamonds both tangled with each other, but also “in the same stage compatible”, De Beers and other giants control the right to speak of natural diamonds at the same time, but also in the cultivated diamond market to step up the layout, that is, the best illustration of the industry trend.

The game of natural diamonds and cultivated diamonds does not seem to be equal, in the words of analysts, the two are driving on different tracks: the latter is a light luxury route, the former is a super status.

The so-called “supremacy” is only relative to cultivated diamonds, compared to their past selves, natural diamonds are experiencing a “dark moment”.

As Societe Generale analysts say, diamond miners are facing a double whammy of weak prices and plummeting sales on a scale comparable to the financial crisis of 2008 to 2009.

The emergence of the epidemic, a “black swan”, has exacerbated the crisis in the diamond industry.

According to publicly disclosed data, almost every diamond miner’s sales fell sharply in 2020.

Among them, the Erosa Group’s full-year rough stone sales of $2.65 billion were down 19 percent from 2019, with total sales of 32.1 million carats, down 4 percent from 2019. De Beers’ full-year rough stone sales of $2.8 billion are down 30% from 2019, with total sales of 21.4 million carats, down 27% from 2019.

The epidemic has eased by the first quarter of 2021, but the industry describes the state of diamond production in this quarter as “very cautiously optimistic”. This is because there is still considerable uncertainty behind the optimistic forecast.

The situation is so severe, is the sale of natural diamonds, or cultivate diamonds, seems to be less important, can once again activate the market for diamond products, the consumption of enthusiasm, is the most important.

In the final analysis, marketing is still king.

When it comes to the marketing of cultivated diamonds, Liu Jiangjiang mentioned the diversification of products. He explained that “out of the product framework of natural diamonds, do more recognizable products, more diversified subject matter, a wider range of materials and processes expressed, fashion, personality, cross-border, integration will be the cultivation of diamond products eye-catching magic.”

In fact, the marketing of natural diamonds, and no less so.

It is important to note that the marketing of cultivated diamonds is not necessarily taking away the target customers of natural diamonds. Olya Linde, a partner at Bain & Company, observes that cultivated diamonds occupy a separate market share compared to natural diamonds due to continued product differentiation.

“I think it is reaching out to a lot of different customers. Cultivated diamonds are becoming more popular as technology advances and prices continue to fall, and I believe this is providing opportunities for more consumers, especially those who might not otherwise consider diamond jewelry. So it’s not a substitution, but the cake is really getting bigger and bigger.”

“The cake is getting bigger” is certainly good news, but who gets to eat more deserves serious scrutiny.

After all, the “diamond freedom” of young people is an important factor to promote the “cake” bigger, who can win the favor of more young people, who can maximize the benefits.